Mortgage Pro Tips: Why your Credit Karma score doesn’t matter
Someone once said, “When fortune happens upon you, it does so in threes.” Welcome back to the third edition of our weekly series, Mortgage Pro Tips. This week we will be covering the different credit scoring models which help determine your mortgage rate and qualification for a mortgage. Borrowers actually have credit scores that vary depending on the credit model used; in fact, when a mortgage lender pulls your credit, they receive three scores and will use your middle score for pre-approval and to determine your rate. Although each credit bureaus’ method in determining your score slightly differs, one factor is constant no matter the model: they collect and store financial information about the applicant that they then use to generate the credit score. Your 3 digit credit score can be based on FICO’s credit scoring model or the VantageScore 3.0 Model which was created by the credit bureaus of Equifax, Experian, and TransUnion.
FICO’s scoring model has become one of the most known and used models in the market. Your FICO score, which is between 300–850, measures: how long you have had credit, how much credit you have, how much of your available credit is being used, and if you have paid on time. Mortgage companies typically use these three specific versions of the FICO score; Equifax Beacon® 5.0, Experian®/Fair Isaac Risk Model V2SM, and the TransUnion FICO® Risk Score, Classic 04.
VantageScore 3.0 uses 6 pieces of information to generate your credit score: payment history, depth of credit, utilization, balances, recent credit, and available credit. The way your credit is scored with VantageScore 3.0 is slightly different than FICO but generally gives the same information. Even though both models are used to generate credit scores, VantageScore is not used in mortgages as of right now. Currently, FICO scores are the main scores used in mortgages.
Equifax uses a credit scoring range from 280–850. The Equifax credit score is purely informational and will not be used to determine the creditworthiness of the borrower. Borrower information is collected and used to generate a score that will give the borrower an idea about where their credit score is at.
Experian’s credit score range is from 300–850. When determining credit score statistical models look at borrowing, repayment, and default history. This data will determine the 3 digit number that accurately reflects the borrower.
Transunion also uses the same credit scoring range of 300–850, like Experian. To make sure you have the best score, Transunion advises borrowers to pay bills on time, do not borrow more than you can afford, and watch how frequently you take on credit.
Credit scores are used to give lenders a quick view of how reliable a borrower is. Though you may not be able to control the score given to you, what you can control is how you deal with your credit prior to being scored.
Next week’s article will focus on Home Type breakdown. Please contact us at info@epochlending.com if you have any questions or suggestions for future blog topics you would like to learn about.
